Chapter:01

Introduction of Corporate
Restructuring
Meaning of Corporate
Corporate means relating to large companies, or to a
particular large company. 
A corporation is a legal entity that is separate and
distinct from its owners.
 Corporations enjoy most of the rights and
responsibilities that individuals possess.
An important element of a corporation is limited
liability, which means that shareholders may take part
in the profits through dividends and stock
appreciation but are not personally liable for the
company's debts.
A corporation is created when it is incorporated by a
group of shareholders who have ownership of the
corporation, represented by their holding of 
common stock, to pursue a common goal.

 A corporation's goals can be for-profit or not, as with

charities.
However, the vast majority of corporations aim to
provide a return for its shareholders.
Shareholders, as owners of a percentage of the
corporation, are only responsible for the payment of
their shares to the company's treasury upon issuance.
Examples of  Corporation
Almost all well-known businesses are corporations,
including
Microsoft Corporation,
 Coca-Cola Company, and
Toyota Motor Corporation.
Reliance Corporations
Meaning of companies
A company is a natural legal entity formed by the
association and group of people to work together
towards achieving a common objective.
It can be a commercial or an industrial enterprise.
Difference Between Private company and
Public Company.
1. Minimum Paid-up Capital-
 A company to be incorporated as a Private Company
must have a minimum paid-up capital of Rs. 1, 00,000,
whereas a
 Public Company must have a minimum paid-up capital
of Rs. 5, 00,000.
2. Minimum Number of Members-
Minimum number of members required to form a
private company is 2,
whereas a Public Company requires at least 7 members.
3. Maximum Number of Members-
Maximum number of members in a Private Company
is restricted to 50,
 There is no restriction of maximum number of
members in a Public Company.
4. Transferability of Shares-
There is complete restriction on the trans­ferability of
the shares of a Private Company through its Articles of
Association, whereas
 There is no restriction on the transferability of the
shares of a Public Company.
5. Issue of Prospectus-
 A Private Company is prohibited from inviting the
public for subscription of its shares, i.e. a
Private Company cannot issue Prospectus, whereas a
Public Company is free to invite public for
subscription i.e., a Public Company can issue a
Prospectus.
6. Number of Directors-
 A Private Company may have 2 directors to man­age
the affairs of the company,
whereas a Public Company must have atleast 3
directors.
7. Consent of the Directors-
There is no need to give the consent by the directors of
a Private Company, whereas
the Directors of a Public Com­pany must have file with
the Registrar a consent to act as Director of the
company.
08. Statutory Meeting-
A Private Company has no obligation to call the
Statutory Meeting of the member,
 whereas of Public Company must call its statutory
Meeting and file Statutory Report with the Register of
Companies.
09. Name:
A public company need not include the word “private”
in its name.
But for a private company, it is mandatory to write the
words “private limited” at the end of its name.
10.Articles of Association:
A public company can adopt the model Articles of
Association given in the Companies Act.
On the other hand, a private company must prepare
and file its own Articles of Association.
Examples of Private and public limited
companies
Flipkart
Parle
Snapdeal
Pepsi India
Jabong
BookMyShow
Practo
Ola
Google India Pvt. Ltd.
Marriott Hotels India Pvt. Ltd.
Life Style International Private Limited
DHL Express (India) Private Limited
Microsoft Corporation (India) Private Limited
Public Limited companies in india.
1. Indian Oil Corporation Ltd. (BSE: 530965, NSE: IOC)
2. Bharat Petroleum Corporation Ltd. (BSE:
500547, NSE: BPCL)
3. State Bank of India (BSE: 500112, NSE: SBIN)
4. Hindustan Petroleum Corporation Ltd. (BSE:
500104, NSE: HINDPETRO)
5. Oil & Natural Gas Corporation Ltd. (BSE: 500312, NSE:
ONGC)
6. SAIL
7.NTPC Limited
8.BSNL
Introduction

Any company or business organization undergone

change on a continue basis.
The change is forced upon the company by external
environment such as increased competition, advent of
new and more efficient techonology,availability of new
product, new classes of customers and business cycle etc.
Theses organization undertake to changes to increase
their custting edge over the competition and enhance
their leadership position so as to make it impossible for
the other competitiors to cathc up with them
Meaning of corporate restructuring
Corporate restructuring can be defined as any change
in the business capacity or portfolio that is carried out
by an inorganic route or change in capital structure of
company that is not part of its ordinary course of
business or any change in the ownership of or control
over the management of the company or combination
thereof.
To Restructure means the purposeful process of
changing the structure of an institutional company, an
industry, a market the world economy.
Restructuring is an attempt to change the structure of
an institution in order to relax some or all of the short
run constranints.it is concerned with changing
structures in pursuit of a long run strategy.
The process involved in changing the organization of a
business.
 Corporate restructuring can involve making dramatic
changes to a business by cutting out or merging
departments that often has the effect of displacing staff
members.
It is a complex and multi-dimensional task. It can be re-
assignment of human resources, downsizing, redrawing
of systems & rules, selling off assets / businesses or
changing the finance portfolio or a combination of all.
The objective is to reorient or tune the organisation to
make it moreefficient and effective.
 EXAMPLE OF COPORATE
RESTRUCTURING
Tata Steel had taken the services of 3 international
consultants namelyMcKinsey & Co, Arthur D Little and Booz
Allen & Hamilton to enable itto become it globally
competitive.It sold of its cements division, had VRS &
modernised its plants andthereafter became the lowest cost
producer of steel in the world.
Asian Paints has restructured its manufacturing operations
into
3SBU’s:Decorative India, Decorative International and anothe
r made up of chemical businesses along with industrial paints
 to ensure focus andgreater accountability. Driving force
being global operations.
The term ‘Restructuring’ as per Oxford dictionary means, “to give a new
structure to rebuild or rearrange”.
(b) Sander defines as “Restructuring is an attempt to change the structure of
an institution in order to relax some or all of the short-run constraints.
It is concerned with changing structures in pursuit of a long-run strategy.
(c) Crum & Goldberg define restructuring of a company as “a set of discrete
decisive measures taken in order to increase the competitiveness of the
enterprise and thereby to enhance its value”.
Motives behind corporate restructuring
Motives behind Expansion
Motives behind control
Motives behind Contraction
Motives behind change ownership structure
Motives behind Expansion
Growth: Every company wants to grow and corporate
restructuring provides way for the companies to throw off cash
flow beyond its internal needs,
Technology: Technology plays an important role as a driver in
expansion strategy.
Product advantages and product differentiation: : This is
important reason gives for expand of business.
Government policy: Different regulations, tax burden and
other restrictions imposed by the government also induce
increase size .
Exchange rate: This reason is specially identified with
expansion leading to international mergeres.
Political stability: Political stability the frequency with which
change government ,the order of transferring power and change
the policy .
Motives behind control
An important motives for corporate control is to ensure that a
programmed for a which successful performance of the firm can
be carried through without interruption.
 Improving leverage ratio: To reinforce effective control capital
structure of the firm is changed.
 Utilization of surplus cash: In order to increase shareholders
return and finally the wealth of the shareholder the firm may
undertake the strategy of distributing surplus cash and the firm
is able to enhance the earning per share.
 Enhancement of voting power: Another important motives
control is enhancing controlling power of promoters without
spending own money.
 Anti takeover defense:: The large premium involved in the
repurchase tender offer may convey information to non isder.
Motives behind Contraction
Improving performance:
The accountability created by
restructuring through demerger often improves
performance and investors also benefit from the grater
visibility of the demerged entities to analysis and the
public.
Booming independence: Demerger is intended to
promote independence as the separate company can
operate freely at its own discretion.
Increase value: Demerger represents harvesting value
by unlocking the hidden value.
Motives behind change
ownership structure
Mamoeuvring levergae:The most important reason for
changes in ownership structure whether debt preferred stock
is exchanged for common stock or conversely common
stock .
Alternation in the control structure: Restructuring of this
kind is aimed at changing the control structure of the firm.
By repurching substantial percentage of shares or by initial
public offering the firms want to reshuffle the voting rights of
the shareholder to change control pattern of the firms.
Change the nature of the firms: If a firm wants to come
out from the regulations of security and exchnage board of
respective country it may prefer that small group of investors
will buy the entire equity interest.
Reason or objective of corporate
restructuring
Changes in competitive situation :Because of foreign
competition, accelerated rate of technological change&
competitive pressures faced globally. To focus on core
competencies by divesting non-core businesses; these
disinvestments can have attractive valuations
Changes in Govt. policies :Major changes in MRTP
Act, FEMA, Industrial licensing, setting up
of Competition Commission of India, etc;Size no longer
is a constraint; growth strategy is based on
competenciesand not govt. licenses;
To enter international markets :This is especially in
the face of quota & other restrictions besides
theeffects of globalisation. 
Ranbaxi
acquired firms’ abroad to penetrate foreign markets.
Infosys
reorganised itself as per demands of international
stock exchangesand investors.
Tata’s
acquired Tetley, Chorus and Jaguar Land rover to enter
global business in tea, steel and automobiles.
To reduce cost:
Reducing the cost structure via a host of
organisational,portfolio and
financial restructuring is essential to make firms cost c
ompetitive/ profitable.
Forms of Corporate restructuring
Financial Restructuring:
Financial restructuring is process of reorganizing financial
structure which primarily include comprises equity or debts.
Financial restructuring means reorganization of financial assets
and liabilities of a corporation in order to create most beneficial to
the company.
Financial restructure done due to financial performance of
company, loss of market share or emerging financial opportunities.
Two component of financial restrcuturing is equity capital and
debt capital.
Organizational Restructuring:
The Organizational Restructuring means
changing the structure of an organization, such as
reducing the hierarchical levels, downsizing the
employees, redesigning the job positions and
changing the reporting relationships.
This is done to cut the cost and pay off the
outstanding debt to continue with the business
operations in some manner.
Portfolio Restructuring: It includes significant changes
in the mix of assets owned by a firm or the lines of the
business in which a firm operates, including
liquidation ,assets sale and spin off.
•
Any change in business capacity or
portfolio carried out by inorganic route
When Tata motors launched sumo and later indica.it
was not just an expansion of its product portfolio.
It was actually expansion of its business portfolio
Commercial vehicles and passenger cars are actually
two different business.
These products were launched from Tata Motors's
own manufacturing capacity
Change in the business portfolio could be in the nature of reduction of business handles by a company.

In the case of Grasim and L& T, the demerger of its

cement business into ultratech cement Limited on
which Grasim acquired control was reduction of
business portfolio for L&T and also amounted to
corporate restructuring.
Any changes in the capital structure of a company that is not in the ordinary course of its business

Capital structure refers to the debt equity ratio .the

proportion of debt and equity in the total capital of a
company.
This capital structure is never static and changes
almost daily.
 Any changes in the ownership of company or control over its management

Change could be affected through various methods

such as
1.Merger of two or more companies belong to different
promoters.
2.Acquisition of company
3.Sell of its company or its Substatintial assets.
4.Delisting of a company
Corporate Restructuring
Indian Scenario
Corporate India is facing new flexibility requirements due to restructuring, some of
which are discussed below

(i) Employment
(ii) Jobs
(iii) Skills
(iv) Workplace
(v) Working time
(vi) Remuneration
(vii) Management
(viii) Organization